Definition:

Fed Funds Sold refers to the short-term loans that banks lend to other banks to meet their reserve requirements. These are typically overnight loans made in the federal funds market.

Examples:

1. Bank A has excess reserves and lends $5 million to Bank B overnight at the federal funds rate.
2. A regional bank sells $10 million in fed funds to a larger bank to earn interest on its excess reserves.

Formula:

There is no specific formula for Fed Funds Sold, as it represents the total amount of funds lent by a bank in the federal funds market.

How to use the metric:

Fed Funds Sold is used by banks to manage liquidity and earn interest on excess reserves. It is also a key component in assessing a bank's short-term lending activities and liquidity management strategies.

Limitations:

Fed Funds Sold is limited to the interbank market and does not provide insights into a bank's overall lending practices or credit risk. It is also influenced by the federal funds rate, which can fluctuate based on monetary policy.

Applies to:

The banking industry, particularly commercial banks and financial institutions that participate in the federal funds market.

Doesn't apply to:

Non-financial industries, as they do not participate in the federal funds market. These industries typically do not have the same liquidity management needs as banks.

Summary:

Fed Funds Sold represents the short-term loans made by banks to other banks in the federal funds market to manage liquidity and earn interest on excess reserves. It is a key metric for understanding a bank's short-term lending activities but is limited to the banking industry and influenced by monetary policy.